Crutcher-Tufts Resources, Inc. v. Tufts

38 So. 3d 987, 2009 La.App. 4 Cir. 1572, 2010 La. App. LEXIS 604, 2010 WL 1727853
CourtLouisiana Court of Appeal
DecidedApril 28, 2010
Docket2009-CA-1572
StatusPublished
Cited by13 cases

This text of 38 So. 3d 987 (Crutcher-Tufts Resources, Inc. v. Tufts) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Crutcher-Tufts Resources, Inc. v. Tufts, 38 So. 3d 987, 2009 La.App. 4 Cir. 1572, 2010 La. App. LEXIS 604, 2010 WL 1727853 (La. Ct. App. 2010).

Opinions

DAVID S. GORBATY, Judge.

[TIn this appeal, Crutcher-Tufts Resources, Inc. (“the Corporation”) and Crutcher-Tufts Resources, L.P. (“the Partnership”), appearing through their liquidator, Trevor G. Bryan, seek review of the trial court’s judgment maintaining the exceptions of no cause of action filed by Stephen Conroy, trustee of the J. David Tufts, III and Claudia Liberto Tufts Children Trust (collectively, “Children Trust”) and J. David Tufts, III, trustee for the JDT/RGT Family Trust (“Ruth’s Trust”). For the reasons set forth below, we affirm.

FACTS AND PROCEDURAL HISTORY

This lawsuit, filed nearly eight years ago, involves allegations of mismanagement of two businesses founded by members of the Crutcher and Tufts families: the Corporation and the Partnership. The petition in this case has been amended five times already. In broadest terms, the real focus of this lawsuit is various claims for breach of fiduciary duty by David Tufts, and for breach of contract against Tufts Energy, a company hired by the Corporation to manage the business activities of the Partnership. Plaintiffs added as defendants the trustees of three different [989]*989trusts, including the Children Trust and Ruth’s Trust, under a theory of alter ego liability or of conspiracy.

12In their earlier Third Amended Petition, plaintiffs attempted to state claims for alter ego and conspiracy against the Children Trust, Ruth’s Trust, and the JDT/CLT Family Trust, whose trustee is Southpac Trust International, Inc. (“Southpac”). Plaintiffs alleged, among other things, that the three trusts were liable in solido for all damages suffered by the plaintiffs as a result of the conduct of David Tufts under an alter ego theory liability, or alternatively under a conspiracy theory of liability.

Southpac filed an exception of no cause of action as to the alter ego and conspiracy claims, which was granted. On appeal, this court affirmed the trial court’s holding as to both counts. Crutcher-Tufts Resources, Inc. v. Tufts, 07-1556 (La.App. 4 Cir. 9/17/08), 992 So.2d 1091 (“Southpac Appeal”). The Supreme Court denied plaintiffs’ writ application. Crutcher-Tufts Resources, Inc. v. Tufts, 08-2677 (La.01/16/09), 998 So.2d 105.

Five months later, plaintiffs filed their current petition. The Children Trust and Ruth’s Trust filed exceptions of no cause of action as to the alter ego and conspiracy claims. After a hearing, the trial court granted the exceptions. Plaintiffs subsequently filed this appeal.

DISCUSSION

Plaintiffs aver that the trial court erred in dismissing its alter ego claims.

In reviewing a trial court’s judgment maintaining an exception of no cause of action, this court conducts a de novo review. Jackson v. State ex rel. Dept. of Corrections, 2000-2882 (La.5/15/01), 785 So.2d 803.

In their Fourth Amended Petition, plaintiffs assert that David Tufts orchestrated a “board coup” for the purpose of retaining a profitable management agreement for his own personal gain. In addition to suing David Tufts, plaintiffs 1 ¡Tiled suit against numerous entities and individuals, including Ruth’s Trust and the Children Trust. Plaintiffs did not allege any direct claims against the trusts. Instead, they asserted derivative claims of alter ego and conspiracy. The trial court held that the plaintiffs’ petition did not contain “sufficient allegations” to state an alter ego claim.

In the Southpac Appeal, this court considered the sufficiency of plaintiffs’ alter ego claims under Louisiana law, stating:

The factors for evaluating an alter ego claim in a corporate setting are:

(1) commingling of corporate and shareholder funds; (2) failure to follow statutory formalities required for the transaction of corporate affairs; (3) un-dercapitalization; (4) failure to provide separate bank accounts and bookkeeping records; and (5) failure to hold regular shareholder or director meetings.

Crutcher-Tufts Resources, Inc., supra, 992 So.2d at 1094.

Moreover, in Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164 (La.1991), the Louisiana Supreme Court noted that the limited liability attendant to corporate ownership should be disregarded, and therefore the alter ego theory applied, “only in exceptional circumstances.” Id. at 1168.

RUTH’S TRUST

There is no allegation whatsoever that Ruth’s Trust was formed improperly or was formed for some improper- purpose. Further, there is no allegation that Ruth’s Trust commingled its assets with David Tuft’s assets; that Ruth failed to follow the appropriate statutory or regulatory formalities when she settled the trust; that Ruth’s Trust was undercapitalized for [990]*990its purpose; or that Ruth’s Trust failed to maintain bank accounts or financial records separate and apart from David Tufts.

Ruth’s Trust was settled long before the events giving rise to this litigation. It was not settled by David Tufts, and does not contain any of his assets. David Tufts is not a beneficiary of Ruth’s Trust. Plaintiffs cannot point to a single case in 14which the sanctity of a trust can be disregarded by way of an alter ego claim to satisfy the debts of a third party.

After this court’s earlier decision in the Southpac appeal, plaintiff added the following allegations regarding Ruth’s Trust:

• That David Tufts dominates the trust, makes decisions over the trust, and used the voting power of the trust to obtain financial benefits for himself and his company;
• That, upon information and belief, David Tufts, appeared at a mediation on behalf of the trust; and
• That David Tufts used his power over the voting rights of the trust to improperly remove officers from the Corporation.

These purported facts do not give rise to an alter ego claim against Ruth’s Trust.

A trust can only act through its trustee. La. R.S. 9:1781, 9:2091. Because a trust can only act through its trustee, David Tufts’ actions as trustee cannot serve as a basis for finding Ruth’s Trust liable for his personal debts.

THE CHILDREN TRUST

Paragraphs 102 through 109 of the petition are plaintiffs’ attempt to set forth an alter ego claim, but they do not address the alter ego factors identified in the Southpac appeal. Instead, as discussed above, plaintiffs assert that David Tufts “dominated the Trusts” including the Children Trust. Plaintiffs do not give examples of how David Tufts, instead of Con-roy, the appointed trustee of the Children Trust, made even a single decision for that trust. Plaintiffs also assert that David Tufts had “use” of the Children Trust’s voting power, but again provide no specific allegations. Importantly, plaintiffs’ allegations involve the conduct of |fionly David Tufts, and do not even mention the defendant trustee of the Children Trust, Con-roy.

Even assuming that the alter ego doctrine could be applied to a' trust under Louisiana law (something which has never been done by a Louisiana court before), no facts are alleged in the petition which would, if proven, establish the existence of the exceptional circumstances that justify the application of that doctrine here.

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38 So. 3d 987, 2009 La.App. 4 Cir. 1572, 2010 La. App. LEXIS 604, 2010 WL 1727853, Counsel Stack Legal Research, https://law.counselstack.com/opinion/crutcher-tufts-resources-inc-v-tufts-lactapp-2010.